Archive for the ‘Traditional IRA’ Category

What are you waiting for? Why women need to save more and how to get started.

Saving is important for everyone, but women especially face unique challenges when it comes to saving and preparing for their retirement. Not only do women live longer than men on average, but they are also more likely to earn less than men over the course of their lifetimes and have less money in savings and pensions. Women often take time away from work for caregiving responsibilities, which impacts earnings, savings and ultimately their Social Security benefit as well. If you are not actively saving and planning for retirement, it’s time to look at yourself in the mirror and ask why not? Or better yet, tell yourself the time is now!

There are common money mistakes women make throughout their lifetimes, but perhaps the biggest one is simply not doing anything; having good intentions but then letting weeks, years, and even decades go by before really paying attention to your finances and figuring how you will afford to live in retirement. If you have ever asked yourself when the best time is to start planning, the simple answer is right now!

If you are ready to start, your next question might be, “where do I begin?” The first step is to take advantage of any retirement plans that might be offered through your employer. Find out what options your employer offers and what you need to do to maximize those benefits. If you are already in a plan, are you contributing at least enough to get any matching contributions from your employer? Can you afford to increase your contribution at least another 1%, 3% or even 5%? Check out WISER’s 20 Ways to Take Advantage of Your Company Benefits Plan brochure for more tips.

If you don’t have a retirement plan at work, you might consider opening an Individual Retirement Account (IRA), which you can do through almost any large financial institution, including banks, mutual fund companies and brokerage firms. Read WISER’s fact sheets to learn more about a Roth IRA versus a Traditional IRA. Keep in mind, you don’t need to be a financial guru to save and invest; you can start to make smart financial decisions with good, basic information. It can be overwhelming, but just start by learning the basics and build from there.

Another new option for workers without access to an employer-sponsored retirement plan is the “My Retirement Account,” or myRA. Think of it as a starter retirement savings account; workers can open an account with as little as $25, and then contribute $5 or more a month through payroll deduction. In addition, you can withdraw funds from a myRA at any time, tax-free, and there are no fees which can often erode savings in smaller accounts. The myRA is administered by the U.S. Treasury, but once the savings balance hits $15,000, you then roll it into a private sector Roth IRA. Read WISER’s “10 Reasons to Say Yes to myRAs”, and visit the myRA section on the U.S. Treasury website to learn more about this exciting new savings option. Currently you can only fund a myRA using payroll deduction through your employer, but look out for more ways to contribute to a myRA account in the coming year.

Finally, if you are staring at an empty savings account and starting from scratch, the most important thing you can do is find ways to save each day and start to build up your savings. It’s okay to start small—if you stick with it, you will see that savings account grow. As your savings increase, you can start to look at other ways to invest your money for retirement. WISER has lots of information to help you budget and save. For more great tips and ways to save, check out the America Saves Campaign at www.americasaves.org, and the Choose to Save program at www.choosetosave.org.

Be sure to check out our blog next week to learn about the importance of Social Security for women’s retirement, with tips to help you better understand and maximize your benefits.

The “Campaign for a Secure Retirement: Helping Millions of Americans Plan and Save for Retirement” is a joint, national educational retirement campaign to encourage retirement planning and saving and to promote the online Social Security Statement, available through my Social Security, as an important retirement planning tool. Campaign partners include the Social Security Administration, America Saves, American Savings Education Council, and WISER. If your organization wants to help others understand the importance of saving for retirement, take our pledge.

With each new year comes new opportunities to boost your savings. For many people, their first opportunity comes at tax time. As you prepare your tax return, here are two important ways to save that you should consider.

Find Out if You Qualify for the Saver’s Tax Credit.

The Saver’s Tax Credit is available to eligible individuals who save for retirement through voluntarily contributions to IRAs and 401(k) plans (or similar workplace retirement programs.) Many people who would qualify for this credit, however, know little about it. It is effectively a federal match for retirement contributions.

You can claim the credit for the 2014 tax year if you are:

* Single, married filing separately, or a qualifying widow AND your adjusted gross income is not more than $30,000;
* Filing as head of household AND your adjusted gross income is not more than $45,000; or
* Married filing jointly AND your adjusted gross income is not more than $60,000.

It is also important to note that the Saver’s Tax Credit is a non-refundable credit. In other words, if you do not owe taxes, then you will not be eligible for this credit. Download WISER’s fact sheet to learn more. The amount of this credit will not change the amount of refundable credits such as the earned income tax credit or the child tax credit.

Save Your Tax Refund!

If you expect money back from Uncle Sam this year, resist the urge to think of it as windfall or bonus that you can use to splurge on something you may not need. Instead, think of it as an instant stash of cash that you can use to boost your savings. IRAs and Savings Bonds are great places to park those tax refunds.

Individual Retirement Accounts (IRAs)

IRAs are a great option for retirement saving at tax time (or any time of year), especially if you do not have access to an employer-sponsored retirement plan. You can open an IRA at many financial institutions, including banks, mutual fund companies and brokerage firms. Both Roth and Traditional IRA accounts provide a convenient way to save money long-term. You can ask for free information on IRAs from your financial institution of choice to help you choose which IRA best fits your situation.

Here are some basics about IRAs to get you started (and check out WISER’s fact sheets on Roth IRAs and Traditional IRAs for more information):

* You can contribute up to $5,500, or $6,500 if you are 50 years or older.
* Traditional IRA accounts are tax-deferred, so you pay nothing while contributing but must pay taxes when you withdraw money at retirement.
* For Roth IRA accounts, you pay taxes now on your contribution, but you do not have to pay taxes when you withdrawal funds in retirement. This type of IRA is especially good if you expect to be in a higher income tax bracket upon retirement.
* IRAs are meant to be long-term investments. You will be penalized if you withdraw from your IRA before you reach 59 ½ years of age. A few exemptions to this rule include withdrawals for college tuition, certain medical expenses, and first time home purchases.

I Bonds

Did you know that you can direct a portion or all of your tax refund toward the purchase of savings bonds? Simply complete IRS form 8888 and submit it with your tax return. The most common and popular savings bond is the I Bond. I Bonds are savings bonds with interest rates tied to inflation, and they can be purchased for as little as $25 or $50. This is a great low-risk investment for folks with small amounts to invest, and/or who are getting closer to retirement age.

Here are the ins and outs of I Bonds, which are a great way to save any time of year:

* Current composite interest rate of I Bonds is 1.48% thru April 30, 2015.
* Your I Bond can earn interest for 30 years, after which you should cash it out
* You can cash your I Bond any time after 12 months, but if you do so before you have had it for 5 years, you will lose out on at least 3 months of interest.
* Interest you earn on any U.S. savings bond is exempt from state and local income taxes. You do not pay federal income tax until you redeem the bonds, or after 30 years.

In addition to using form 8888 to purchase savings bonds with your tax refund, you can buy savings bonds electronically any time of year by setting up an account at treasurydirector.gov. With a TreasuryDirect account you can directly purchase I bonds, or you can arrange for a payroll direct deposit or automatic deduction from another account to purchase I bonds at whatever denomination you select.

Whether you have $25 or $2,500 to spare, there are smart ways to invest your money and build your retirement savings. Saving at tax time can get you off to a great start for 2015, and you’ll benefit from these savings for years to come!

Thursday’s step for America Saves Week is saving for retirement. See? I told you we would revisit the topic!

Saving for retirement is important for everyone, but women face unique challenges that often cause financial hardships during retirement. Women are twice as likely as men to be poor in retirement, and as they grow older they grow poorer. Since women live four years longer on average than men and are three times more likely to live alone, not having enough saved for retirement is a significant problem. WISER encourages everyone to start saving for retirement early, but even if you feel a little behind with your savings, it’s never too late to start. Every step you take now can go a long way towards achieving a more financially secure future.

One of the best solutions to increasing your retirement savings is to participate in your company’s 401(K) plans and maximize those benefits. Try to contribute enough to receive the company match. If you are already contributing that much, plan to increase the amount you contribute by 1% in 2014.

For me, a company 401(K) is not currently an option. I work several jobs, but they are all part time so I do not qualify for company retirement plans. This situation is one that many women face. But it does not mean that you can’t open your own retirement account.

Now, I can guess what you’re thinking. I write about retirement issues. How can I not have an account already set up?

The truth is I have a lot of “reasons” to wait. I am only in my early 20s. I’m a graduate student with student loans. After tuition, books, rent, and food, every penny I can save usually goes towards paying interest on my loans so that when I graduate I do not have even more loans to pay. Graduation is right around the corner, and retirement just seemed like something I could get to later.

Working at WISER certainly exposed me to reasons why this attitude could cost me in the long run, which is why I choose “Retirement” as my reason for participating in America Saves Week. Today, I decided enough with the excuses. Setting up a retirement account now does not cost me excessively, while delaying it hurts me in the long run.

Where to start? My first step was to research the different type of retirement accounts. I found this article particularly helpful in explaining the difference between a Tradition and a Roth IRA. After reading that article and a few more, I decided on opening a Roth IRA. One of the main differences between Traditional and Roth is that with a Traditional IRA you contributions are tax deductible (tax free), but your withdrawals are taxed. In a Roth IRA, you pay taxes on your contributions, but withdrawals are tax free. This makes Roth IRAs ideal for someone who can expect to be in a higher tax bracket when she retires. Since I am just starting my career, I know that I will be in a higher tax bracket in forty years.

My next step was to research where to open my account. I am a fan of the breakdown by NerdWallet, but make sure you do your own research. I chose an option that had no fees or minimums, but limited stock trading options. This option works for me since I don’t plan on doing much trading. Once you pick your financial institution, it’s a pretty simple process to open your IRA, but it can be a time consuming. I filled out all of my information online. It took roughly 30-45 minutes but that includes taking extra time to make sure all of the information was correct. And now I have an IRA!

Based on yesterday’s theme, I also set up transfers to my IRA automatically. Because I am still concerned about my student loans, I chose to transfer only once a month. Like WISER says, start small and grow from there.

WISER

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WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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